DEVELOPMENT RECORD OF MARKET-DRIVEN GLOBALIZATION POINTS TO URGENT NEED FOR POLICY RETHINK, UNCTAD STUDY CONCLUDES

UNCTAD/PRESS/PR/2003/9501 October 2003

For the past two decades, the search for sound economic fundamentals in poorer countries has been all about replacing a state-driven inward-oriented growth strategy with a market-driven outward-oriented strategy. Much has been promised, but according to the Trade and Development Report 2003(1), released today by UNCTAD, the policies pursued to eliminate inflation and downsize the public sector have often undermined growth and hampered technological progress. As a result, "the current economic landscape in the developing world has an uncanny resemblance to conditions prevailing in the early 1980s", when many countries slipped into deep crisis, says UNCTAD Secretary-General Rubens Ricupero in his Overview to the Report.

The target level of investment for catch-up growth - estimated by the Report to be in the range of 20-to-25% of GDP -- has eluded most countries undergoing rapid market reforms. By contrast, policy continuity in East Asia after the debt crisis produced a strong investment performance, growing manufacturing value added and employment and a rising share of manufacturing exports. With productivity and technology gaps with leading industrial countries closing quickly, the region´s integration has come from a position of strength. Elsewhere, the Report finds a less encouraging record:

Industrial progress has halted in much of the developing world; only eight of 26 selected countries succeeded in raising the share of manufacturing value added in GDP between 1980 and the 1990s, together with a rising share of investment;

In economies with lagging industrialization and a declining share of investment, the share of manufactures in total exports has also been stagnant or falling, while exchange rate depreciation and wage restraint have been the basis for bolstering trade performance;

The production structure in much of Latin America and Africa has seen a notable shift away from sectors with the greatest potential for productivity growth towards those producing and processing raw materials; and

Where trade and investment have risen in the context of international production networks, the tendency has been for an apparent increase in the technology content of exports without a similar increase in domestic value added.

The Report documents a world of industrial difference across developing regions. In Asia, a handful of "mature industrializers" have shifted to a high-tech and service-heavy development pattern, leaving neighbouring countries more room to use their natural resources and labour reserves in support of rapid industrialization. By contrast, declining shares of manufacturing output and employment ("deindustrialization") have accompanied rapid liberalization in many Latin American and African countries. "Enclaves" of industrialization linked to international production chains have dotted this landscape, without in most cases translating into more broad-based investment, value added and productivity growth.

A wide range of macroeconomic, financial and trade policies were used in East Asia, the Report shows, to stimulate investment, target industrial upgrading and encourage exporting. In much of Latin America and Africa, by contrast, big-bang liberalization has led to inconsistencies among macroeconomic, trade, FDI and financial policies that have skewed structural changes and stunted technological progress. The Report also finds that some of the more successful sectors in Latin America have benefited from precisely the kind of selective policy interventions alien to the neoliberal model.

The Report is doubtful that a "second generation" of neoliberal reforms will start to put things back on track. But nor will harking back to the easy industrialization policies of the past. Rather, as Rubens Ricupero notes in his Overview to the Report, "Rethinking options requires a candid assessment of the economic record of the past two decades and of the experience of the more successful cases of industrialization and development. It also requires a move away from generalized approaches to accommodate the diversity of conditions and challenges facing the developing world".